#235 U.S. Renters Face “Unprecedented Affordability Crisis”

Renter crisis, Portland Housing discrimination, and a sticky tenant situation involving a church and gaming machines.

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Resources mentioned in this episode

  1. U.S. Renters Face ‘Unprecedented Affordability Crisis,’ Fed’s Community Council Says
  2. Portland housing audit finds renters still face discrimination
  3. THAT’S NOT OURS | Pastor says hidden game room firefighters found in church building isn’t his

Show Transcription

00:00 Hey everybody, welcome back to another episode of RentPrep for landlords. I am your host Eric Worral. Steve is off today. He’s in the office, but he’s got some stuff he’s got to take care of. So I want to be taking the reigns on this episode and this is episode number 235 and we’re going to be talking about some recent stories in the news from the last week that affect landlords and real estate investors and as the title suggests, we have a pretty interesting topic that actually is coming from Forbes that we’re going to be talking about an unprecedented affordability crisis and some pretty shocking statistics on what renters can afford and what’s happening right now in the US rental markets. I will get that and a couple of other stories that we’re going to get to, but uh, why don’t we roll some of that sweet intro music first.

00:47 01:13 1,2,3,4 ya ya ya…. Welcome to the RentPrep for landlords podcast. And now your host, Steve White and Eric Worral.

00:54 I always feel weird when they intro, kind of tease it up and talks about Steve, me being here and then it’s just me kind of makes me feel lonely, you know, it’s just Eric. There’s no co host, it’s just a host. That’s okay though. We got some good stuff going on here at Rentprep. Steve White is busy. Uh, we actually have been pretty busy lately. Onboarding property managers, how we do a lot of work with property managers, doing credit checks for them, setting them up in our system where we can actually have specialized services that we offer just specifically for our property managers who manage 50 or more units. So if that’s somebody like yourself, be sure to check us out. You can call us, email us however you want to reach out to us at Rentprep. But, uh, we could be of help and service to you.

01:38 So the first story I want to start off with, I want to get to the first story. That’s the juiciest. This one comes from Forbes.com And the author is Pedro Nicolaci Decosta and the title of it is U.S. Renters Face ‘Unprecedented Affordability Crisis. He goes on to say that the Americans are renters are struggling with a toxic mix of rising rents and stagnant wages that’s generating an unprecedented affordability crisis, leaving more than half of households in a precarious financial state. So according to this article here, 51 percent of runners nationally pay more than 30 percent of their income on rent and utilities.

02:20 Now that is the line that really stuck out to me from this article. This article was just published on November 23rd and yeah, that stats is eye popping to me because a lot of our clients use a 30 percent rent to income ratio and if you’re new to being a landlord, basically what that is your income and your rent, you do not want your rent to exceed 30 percent of your total gross income. So according to this article, just slightly over 50 percent, 51 percent to be exact of renters are spending more than 30 percent of their income on rent and utilities. Now I know that most landlords don’t include utilities on that, so that is a little bit skewed, but that’s, uh, that’s pretty, pretty staggering. Uh, the, to me, the takeaway from a landlord perspective, you know, of course this article is talking about the issues that renters are facing and there is a, um, you know, a stagnation a, it’s not a secret that wages have risen a lot in the US in the last few decades, um, as opposed to inflation and other things. But from a landlord, if you’re looking at this, you, you gotta realize that possibly 50 percent of the people coming to look at your apartment know all depends on where you live and where the location is. But 50 percent of runners are spending 30 percent or more of their income on rent and utilities. So that’s why it’s extremely important to be asking that question and making sure that you’re making it part of your screening criteria of what your rent to income ratio is. And 30 percent is usually the standard. Some people will do 25 percent, but 30 percent is a pretty good rent to income ratio. So, uh, you know, uh, another quick one that people will do is you must make three times the rent that’s kind of similar to saying like 33 percent that’s a little bit more aggressive if you want somebody, a gross income to be three times the rent to be considered for your rental property, 30 percent a little bit less aggressive. Um, but if you’re going lower than that, I mean you really are creating an issue for yourself as the landlord because, you know, obviously if this person is spending more than 30 percent of their income on rent, it could be hard for them to pay for rent some day if you know the car breaks down or they have other things that happen in life. So that’s why that’s in place. But it’s kind of a, a scary statistic. Uh, this is saying that for low income renters and renters of color, particularly women of color are mostly squeezed by the crisis. The council estimates more than three quarters of lower income households pay too much for rent. And 6 and 10 women of color who are head of households pay too much for rent compared with 4 and 10 white men. Uh, you know, uh, among a range of statistics. The group side of, they news zillow analysis showing that 42 percent of rental listings were within financial reach for median income US household, just 16 percent for median black family and income and 27 percent from a median Latino household. So, uh, you know, all those statistics are gonna, you know, affect you differently depending on where you are, where your location of your rentals are. But, uh, you know, this is where kind of that term disparate impact kind of comes in. We’ve seen it with criminal records, but this article is obviously making the, uh, the nexus or the connection that these, uh, this rental crisis is not equally effecting every, uh, every ethnic group were Latinos and black men, especially women, are being effected even worse by this rental crisis. So again, not to be harsh about it because I do think this article is bringing to light a, you know, a sensitive topic that is affecting people, uh, in the United States and in our communities, but from a landlord’s perspective, just be consistent, have your rent to income ratio standard and stick with that. Uh, and then you know, it’s not your job as the landlord to fix the economy. Unfortunately, uh, it’s your job to find out if your rental is appropriately priced for your neighborhood and then stick to your screening criteria to make sure that you get good tenants in. A good tenant isn’t somebody have a specific color or race, a good tenant as somebody who pays rent on time and has a good rental history and that’s what you want to stick to. And that’s what your criteria is all about. So make sure you had that screening criteria because that’s gonna come in handy if you ever face any kind of accusations of discrimination. And the reason I say that is that segues nicely into our next article.

06:48 This one comes from Oregonlive.com and this was published on November 21st, and this one says that Portland housing audits find renters still face discrimination. So occasionally a Portland comes up in the news here because there is a lot of back and forth on what’s going on there. It is a very progressive, um, I should say very pro tenant friendly city where I know there’s a lot of things like if you evict a tenant, you may have to pay for their moving costs or uh, there’s just a lot of different programs set up that to make it a tenant friendly. And part of the reason is that the rents, we’re getting to a point where tenants couldn’t afford to live there anymore. So that all aside, this particular article is saying that immigrants and people of color continue to face discrimination in Portland’s white hot rental market years after city officials committed to end housing discrimination. So undercover testing found landlords gave worst treatment to immigrant and nonwhite runners about 25 percent of the time, according to results published Tuesday by the Portland Housing Bureau, immigrant runners were given disparate treatment most often have the results show. So again, the spirit treatment just meaning that one ethnic class or group is being unfairly discriminated against. The disproportionately is what the disparate treatment means. Uh, the finger reinforces a 2011 city audit and subsequent fair housing tests they found black, Latino and disabled runners face widespread discrimination in Portland. Mayor Ted Wheeler, who is the city housing commissioner, said in a statement Tuesday that city officials were required to remedy the problem.

08:19 So the results from the fair housing report indicate something we have been working to remedy locally and in our nation and inherited history of discrimination. I think we can all agree that we have further to go. So, that’s kind of coming from the mayor there, but I’ll scan ahead here for you. The interesting thing is that this article breaks down those fair housing audit. So I’m sure a landlord’s interested in hearing how that works. Basically what they do is the fair housing audits work by sending trained actors to seek rental housing. A white actor will pose as a renter, as willy person who belongs to a protected class, a person of color, immigrants, disabled person, so on. They separately seek the same rental housing and compare results for preferential treatment. For the latest test initial results found that white runners were given preference in 9 of 45 cases, which is pretty high. I mean you’re talking close to 20 percent. The Fair Housing Council of Oregon, which conducted the audit, did additional testing at 1245 sites where the initial results were inconclusive and found for more instances of discrimination. So the fair housing council also operates a housing discrimination hotline. Calls from March 2016 to November 2017, nearly 25 percent reported racial discrimination. 37 percent complaint of discrimination based on disability. Results suggests renters who are immigrants or people of color or form are likely to be quoted a higher price for rent and security deposit than white counterparts like that right there is just ridiculous. If you’re going to charge a higher security deposit, it has to be because somebody didn’t meet your screening criteria. This is a, you can have a conditional, um, response to that were, you know, you can have it set up and your screening criteria that if you don’t meet these certain thresholds, that they will be issued adverse action and that is conditional adverse action and you have to spell it out to them, explain why that the security deposit is going to be more. And that’s because you didn’t. No, you didn’t meet my 6:50 credit criteria. So this is a conditional adverse action, which is one of the free forms we have. If you’re Rentprep client and you need to spell that out and make sure that the person is aware that in that case, if somebody you know, is a creating a, um, a housing discrimination claim against you and they’re saying, I’m being discriminated against because of X, Y, Z, and they’re charging me a higher security deposit because of that. That’s what you do is you point to the adverse action notice that you gave them. So a lot of people think that adverse action, if you’re not familiar with that, what that is, is when you deny somebody or you have conditional requirements for them such as a higher security deposit, you must issue adverse action. A lot of people don’t do this in general, but definitely a lot of them don’t do it for the higher security deposit. So if you’re using that form and you’re, you’re issuing that. If you have a discrimination claim against you, you point to that form and you say, no, this is my screening criteria. And then the reason the, uh, the security deposit was hired was because they didn’t meet my initial screening criteria and this is conditional, um, you know, uh, adverse action that I issued to them. So you definitely want to make sure you’re doing that. So results suggest that the runners who are immigrants or people of color are former or likely to be quoted that higher prices I was mentioning. So that kind of discrimination is illegal. Obviously the US fair housing act, bands giving preference to housing based on race, national origin, religion, sex, family status and disability. Uh, you’ll notice too early in this article I’m in, Oregon was talking about immigration status to that is something that’s being considered more and more specifically in regions I know on Buffalo, that’s something where you cannot discriminate against somebody based on immigration status. So that’s why it’s important to know what your local law is and what the federal law is on the US fair housing act as well. So I’ll just read this last little bit to you because this is interesting. Landlords who discriminate can be subject to fines and lawsuits, but enforcement is rare because officials may be reluctant to crack down on the powerful real estate industry and few lawyers take on the cases. I thought that was interesting. I’ve never heard that before. Says that many runners do not report housing discrimination because they do not know it’s unlawful. I can tell you that that may be true, but that’s only going to become less and less true over time. So it take a emotional support animals, for example, that was a loophole for many writers who wanted to sneak a pet in. Some people legitimately need a emotional support animal. Uh, but we also know that there’s a lot of runners who just, you know, are trying to sneak a pet and they don’t want to pay a pet deposit and they don’t care that you have a no pet policy, which you should be calling it, no animal policy, um, or at least using the word animal instead of pets in your disclaimers in your vocabulary as a landlord or property manager. Uh, if you don’t know what I’m talking about, their checkout, our emotional support animal, a podcast we did with Jamie Came. But when those first came out, there wasn’t many people that knew about them. And now you look two, three years down the line, there’s tons of runners that know that, oh, you just, you know, emotional support, animal getting ESA letter, you’re fine. Uh, so these things, word spreads.

13:26 So right now with a tenants aren’t aware that it’s a of how to report discrimination or that discrimination is illegal, it’s only going to become more prevalent and more understand stood by people in and it should be because it’s a, it’s something that they shouldn’t have to deal with. It shouldn’t have to curb neighborhoods or, you know, change the way that people live because of discrimination, so it’s a good thing that people are becoming more aware of it and it’s gonna make landlords being more on their game and understand what the laws are and make sure that they’re abiding by it. So, yeah, I just thought it was a pretty interesting article. Um, it does point out that the, uh, the city is trying to do more, she pointed to her bureaus announcement that it will make a $200,000 available for nonprofits to provide legal aid for enforcement against bad landlords. So they are doing things to make it easier for people to get legal representation paid for in that city. So like I said, it’s a very pro tenant city, uh, due to the, um, the fact that it’s a very hot rental market.

14:23 So landlords are making really good money out there based on the appreciation of the rents, but at the same time they deal with a lot of issues with the tenants, uh, and everything they have going on.

14:34 So, uh, this last story comes from abc13.com, which is in Houston, Texas, and this was from a Sunday, November 25th. And this one just kind of caught my attention. It was a kind of a strange story and the title says That’s not ours. Pastor says hidden game room, uh, that firefighters found in the church building isn’t his. So, Let me read this one to you because there’s a few things to kind of peel back here. And there’s definitely a landlord lesson and tucked inside. So, firefighters, we’re called to report of a fire inside of a house of worship in North Harris County that uncovered instead more than 100 gambling machines. So crews were called the 800 block of attorney, drive it around 7:30 PM, Friday for a reported fire at the world of life church. So the firefighters arrived to find no signs of a fire. However, the person who reported the incident said he was locked in by an electronic door lock, cruise, made their way to the church where they revealed a large gaming room. So Harris County sheriff’s deputies were called to the scene where they took several people out of the building and handcuffs. The sheriff’s office has said it was interviewing people regarding the game room. One person was arrested on an outstanding warrant. So basically you have this church setup and for some reason somebody called and reported that there was a fire happening at the church. But when the firefighters got there, there was no fire, but they found 100 gaming machines. So the pastor of the Church said that the church shares the building with another business. One side of the building is the world, the life church and your other businesses is It’s own separate entity. Scott, who the pastor said that he and his church couldn’t afford the entire building. So the landlord put a wall that separates the church from the other side of the building. He also says he has no idea who the manager of the other side is and has little to no information about the business they run. An investigation into the game room and including its legality is underway. Oh, I know what you’re probably thinking. You’re like, what is going on? Like it’s a weird situation. Right, and I’m wondering how the landlord handle that because he probably had a tenant that said, hey, I can’t afford to pay you the rent anymore. So the landlord things. Okay, like let me just put a wall up in the middle of this building and I’m going to run out to somebody else in the other side. Well, I find it strange that the pastor doesn’t know who that is on the other side. Right. You’d think there’d be some sort of understanding since you’re sharing the same roof of the entire building that you used to inhabit on your own, but I wonder how the landlord went about setting that wall up and where these gaming machines, how those got in there. I’m pretty sure that’s an illegal accents. The sheriffs are getting involved, so you’re wondering kind of what the landlord did as far as screening these new tenants and what the legal implications are all around for this.

17:19 So I’ll read a little bit more. It says that the, in an effort to clarify and confirm his church or the relationship with the other business, the, the passenger posted a 15 minute video to his facebook page explaining that the, um, he gave a tour of the facility where they were electronically locked doors. You said he had never had access to. I can just imagine now that this was probably a pretty tough situation. I mean, you talk about renting to friends, right? You shouldn’t be running to your friends. Well, part of the issue with running to friends, and I’ve dealt with this before, it feels weird when you have to crack down on them, whether it’s for late rent or you know, uh, maybe it’s a noise complaint issue or something like that. It feels weird because then you’re like, wow, I’m the landlord hat now that I’m wearing. And I know I was wearing the friend hat a couple of weeks ago when we were hanging out. But uh, this must’ve been a tough a situation where the church comes to the landlord and says they can’t afford the rent. And now the landlord, you know, who wants to evict, you know, a pastor of a church that’s not a great look. Right? So, uh, it sounds like the landlord’s got a sticky situation. Hopefully they’re not going to be in any trouble and it’s just on the tenant. Um, but yeah, screen your tenants. Don’t try to budge on your, your rents and just throw up a random temporary wall and then all of a sudden there’s these, you know, electronic lock doors that people didn’t have access to. I don’t know the full story of why somebody was calling from inside those doors and claiming there was a fire. I don’t see why you couldn’t call and you know, tell the police something else to get them there. But also, yeah, don’t, don’t call them about fake fires. You know, firefighters are there for a reason to fight fires. Don’t, don’t make a fake call to get them to come in. And you know, maybe there was a fire across town that they couldn’t get to as quickly because of that. That’s kind of ridiculous too. But as far as housing and rental markets, Houston is one of the largest in the country. Um, if I’m not mistaken, I think it is the largest rental market in the United States. I’m sure somebody will correct me on that if I’m wrong. But, um, yeah, I just thought that was an interesting story. Um, you know, the main takeaway is, you know, don’t budge on your rents with your tenants. Don’t start like adding an extra room or like partitioning off walls and stuff like that so they can make their rents. Just have the uncomfortable conversations and figure out what you’re going to do. And you can budge if you want. You can say, you know what, that’s fine, you can pay me last. That’s up to you. There’s no laws, you know, it is a business and you want to treat it as one. But if you want to, uh, you know, help somebody out, you’re more than welcome to do that. But, uh, don’t help them out by having a shady business move into the same building with them. That’s a, that’s not a great situation to be.

19:55 And so, and I should mention that I’m looking forward to next week, we have a special guest, Elizabeth Faircloth on the podcast. She is a part of the tandem group. Elizabeth and her husband Matt are of Derosa Group, uh, if you happen to catch my facebook live interview with Matt, a Derosa Group, they’ve done over $30 million in private equity deals and Matt wrote the book called raising private capital by bigger pockets and Elizabeth has her own podcast and she’s been involved with real estate for a few decades now and she’s going to be on the podcast sharing her insights, her story of how she got started and what real estate investing has done for her and her family and just kind of pulling any kind of insights and tips that we can from our time with Elizabeth on the podcast next week.

20:40 So be sure to check that out when that comes through next week. Well, that does it for this week and hope you’re having a great December so far. And uh, yes, stay warm if you’re in the northern climates like we are and we look forward to catching up with you guys next week. All right, take care.

About the author

I believe the biggest mistake you can make in life is not learning from them. I've been a landlord since 2009 and still learning all the time.

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